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Debt Collection Industry Grows As Crisis Bites
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By David Oakley, The Financial Times Limited

The debt collection industry has grown sharply this year as higher borrowing costs and the fallout from the credit crisis force more companies and individuals into difficulties, according to figures due out today. The size of the industry has almost tripled since 2003, growing from 8.6bn of debt sold on to professional collection agencies to 22.7bn by the end of this year. It is also forecast to grow to 24.1bn by the end of next year.

The figures from the Credit Services Association (CSA), which represents 95 per cent of the debt collection industry, underline the growing problems of personal and company indebtedness in Britain, which has been exacerbated by the credit squeeze as troubles in the financial markets spread to the wider economy.

Najib Nathoo, president of the CSA, said: "The debt collection industry has been growing rapidly in the past year. It is being driven by the underlying credit boom, but the crisis in the financial markets has made the situation worse. "Underlying debt has gone through the roof and lenders and organisations increasingly want to move any bad debt off their books. Whether it is a high street bank, a credit card lender or a mobile phone company, growing numbers are turning to professional debt collectors in a more difficult environment."

In the past few months an increasing amount of debt has been passed on to collectors. The amount handled by professional agencies has risen by 8 per cent since September last year, when it stood at 21bn, with the industry reporting an upsurge since the summer.

Mr Nathoo also identified new financial rules, under Basel II, as a cause of the growth. The rules, due next year, have encouraged banks to shift bad loans off their books more quickly because they will be required to hold more capital against risky assets that may default.

John Cardwell, commercial director at Access Credit Management debt collection agency, said banks and credit card companies had contributed to the growth of the industry because of their loose lending rules. Although more borrowers are now being refused credit cards and loans, he believes many people are paying the price for over-extending themselves in the past.

"Some lenders just let people borrow beyond their means. If you are told you can borrow another 2,000, you may well take up the offer, even if it is stretching you beyond what you can afford. There really needs to be more regulation to stop people running into trouble. Otherwise debt will just keep rising until it gets out of control."

Britain's debt mountain has tripled during the past decade, exceeding the total size of the economy. Consumer debt swelled to 1,379bn by the end of September, according to Bank of England figures. Annual gross domestic product stands at 1,300bn. Jonathan Loynes, of Capital Economics, said: "The economy is growing strongly at the moment, but there are warning signs out there, such as the growth of debt collection. Mortgage arrears, home repossessions and personal bankruptcies are also at levels that suggest there could be problems down the road."

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